Intellectual Property (Cyprus)

Cyprus Tax System

Cyprus has been a member of the EU since May 2004 and has the lowest corporate rate of tax rate in Europe, set at 10 %.

Licensing of intellectual property (IP) is a very important activity for international entrepreneurs and entities. A Cyprus company can play an important role in the process of licensing and recouping royalties as the owner of the IP.

The Cyprus company could license the IP to various external and/or related international clients. All the net profits would be taxed in Cyprus at 10% corporate income tax (except from a possible gain upon the sale of the IP, which may under circumstances be exempt).

Any foreign source tax that has been withheld can be credited against the payable Cyprus corporate income tax. Under the Cyprus’ treaty network [Double Tax Treaties] and/or the EU Interest and Royalty Directive [i.e. minimum 25% participation of the Cyprus Company in the U.K company], withholding tax over the royalty payments can be reduced, and in certain cases may be 0%.

A non-resident shareholder of the Cyprus company would not suffer any dividend withholding tax in Cyprus from dividends paid by the Cyprus company according to the Cyprus Income Tax Law. Furthermore, if the Cyprus company is held by an EU resident company, then dividends from the Cyprus company may have all the benefits of the 2003/123/EEC Parent Subsidiary Directive.

Advantages in using a Cyprus Royalty Company

• Large double tax treaty network.
• Possible application of the EU Interest and Royalty Directive, as well as other EU-Directives.
• The lowest corporate income taxation (10%) in the EU.
• Possible corporate income tax exemption for gains upon the sale of IP.
• No withholding tax on royalty payments.
• No withholding tax on dividends to non-residents.
• No withholding tax on interest payments to non-residents.
• No capital tax over capital contributions into Cyprus resident companies.
• No thin capitalization rules.
• No Cyprus (corporate) income taxation over dividends/capital gains derived from the shares in Cyprus based companies by non-Cyprus shareholders.
• Low capital requirements.
• Fast incorporation procedures.
• Low maintenance expenses.
• Well developed infrastructure.

Adequate structuring of the ownership of IP and the channeling of license payments through a Cyprus company can lead to significant tax benefits.

IFG's International Trust and Corporate Services Division can assist with the implementation and administration of a tax advantageous structure to ensure full exploitation of the potential IP.

IFG does not provide taxation or legal advice. The information and expression of opinion expressed in this briefing note are not intended to be a comprehensive study or to provide taxation or legal advice. Specific advice concerning individual situations should be taken and IFG can provide introductions to advisers who specialise in this area.